Consider Transportation Costs When Pricing Your Product

By July 7, 2016 November 11th, 2016 Supply Chain

As long as your business transports its products as part of the supply chain process, you need to assess those transportation costs as part of your total cost per unit.

This article first appeared on the AmeriQuest Business Services website.

In an increasingly complex and volatile world, it’s more important than ever for businesses to know exactly where their capital is at any point in time, and where it’s going. Manufacturers need to be aware of global instability when considering the availability and cost of their raw materials. Retailers need to be able to measure customer behavior so they can accurately forecast demand in order to maintain appropriate inventories. Numbers are being crunched continuously to assess the enterprise’s financial standing. For every step in the supply chain, from materials supplier to manufacturer to retailer, there needs to be a way for each entity to know their cost per unit in order to assess how they should price their product for the optimal ROI.

One of the necessary components in the supply chain is transportation and the cost of this essential function should be, and usually is, part of the calculation to establish product pricing, For those with private fleets, we always recommend that they know their total cost of ownership for that fleet, which includes more than simply the cost of fuel, maintenance, and equipment. Fleet owners should be able to know at what point in the asset lifecycle to replace each vehicle in its fleet based on actual data for that asset, not just on lease or financing terms and dates. Private fleets are very aware of changes in regulations, technology, and fuel prices that will impact their profitability.

It’s actually due to these issues (along with that of the driver shortage) that a number of companies that once operated as private fleets are now looking to outsource their freight transportation needs. Purchasing assets, maintaining a maintenance capability, and creating a logistics division is extremely costly in today’s quickly changing environment. Working with a dedicated contract carriage provider gives companies the time and money they need to focus on their core business.

With that being said, customers who outsource their fleet still need to be able to forecast their spend when it comes to moving product. Contracts with a provider will make that cost evident, and calculating how that impacts the cost per unit becomes clear. But, as I indicated above, things change. The ups and downs of fuel prices and availability, new regulations which can also mean new technology investments might seem unimportant to a company that outsources its fleet needs. Obviously, the direct costs affect the carrier. However, being aware of these changes will give company executives the information they need to forecast freight transportation costs moving forward. It’s important that companies keep themselves informed of potential changes, and it’s incumbent upon carriers to keep their customers apprised of changes that could affect the industry. Remember, whatever changes in relation to cost for your transportation needs will ultimately affect your company’s overall cost per unit.

Patrick Gaskins

About Patrick Gaskins

Patrick Gaskins is Group Vice President Financial Services, CTP of Financial Services with AmeriQuest Transportation Services. He has nearly 20 years’ experience as a financial services professional in the transportation industry. Prior to joining AmeriQuest, he held financial services positions with First Fleet and GE Capital.

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